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The case shows the difficulties of a cross-boarder joint venture between Wane Machines, Inc. and NLZ.

Wane Machines, Inc. is a US-based company, with 150 years of experience in manufacturing, installing and maintaining large-scale heating and cooling equipment. The corporation is divided up into 4 divisions (USA & Canada -> domestic; Latin America, Asia, and Europe), which unite 50 companies in 160 count ries. After a severe economic crisis in the USA and later on in Europe, Wane Machines decided to explore the markets of Eastern Europe as well as those of the Soviet Union (former). In February 1990 Wane M achines formed a joint v enture with NLZ, a state-owned manufacturer of heating and cooling equipment. This represents one of the first major commitments of foreign companies, since most companies are cautious investing in Russia's unstable political and economic environment. Due to the fact, that Wane`s headquarter for the European division is located in Brussels, the strategic union was registered as a Soviet-Belgian joint venture, named Rus Wane Equipment, with initial capital funds of 11.5 million US $. Wane has a 57 % share and NLZ keeps 43 %. Besides this joint venture, Wane established another JV with a St. Petersburg partner in order to install and service its products in Russia. The strategy of the JV with NLZ was based on the following assumption: No profit for the first three years Developing export potential for Eastern Europe Hoping the ruble would become a convertible currency in the near future (which is not feasible at the moment (early 1990`s) due to high inflation rates) Projections for the Russian market are 100,000 units of which 60,000 are provided by Soviet companies. That equals a potential volume of 40,000 units for Rus Wane. In order to reach this goal the positions requiring direct contact and the need of cultural background are filled by Russians and the expertise is represented by Wane staff. Consequently, Lev Novikov (Russian) became the general manager by also remaining general manager of NLZ. Another advantage for doing business in Russia is the Joint Venture Law of 1987, which provides foreign companies with a preferential tax and some other privileges. However, this law was withdrawn in 1994. The board of directors was build as follows: Chair: area vice-president for Central & Eastern Europe of Wane Europe Legal Counsel of Wane Europe Wane Country Manager for Russia: Ron Chapman General Manager of Rus Wane Equipment: Lev Novikov Representative from Russian Ministry In a comparable short time of just two years, a joint plant with w estern standards was established by June 1992. In August 1993 the first product was delivered. But there were several obstacles to overcome in the beginning, as due to the economic crisis of Russia and its neighbour countries the demand dropped precipitously. Additiona lly Rus Wane was even at zero profit margins twice as expensive as its Russian Competitors. Also the plan to export from Russia to other countries was not feasible, due to the high inflation of the ruble. In order to meet Wane`s standard of production they invested a lot money in training their suppliers. The success of the joint venture is also faced with the unpredictable legislation framework with its arbitrary tax and funds policies.

In spite of all these problems Rus Wane`s cash flows are sufficiently enough in order to compensate its manufacturing losses. However, the JV is overstrained by personnel problems. John Swift (American), deputy general manager at Rus Wane, feels ignored by Lev Novikov concerning the hiring procedures. The latter hires increasingly people of his personal environment as well as people, who are close to NLZ or rather to Rus Wane (e.g. son of a local customs officer). Therefore John is criticizing that hiring is not implemented according to Wane machines hiring principles. Jeff Nichols, an 27-year-old American, is assumed to become the financial manager, but is at first appointed by Lev Novikov to be a financial consultant, due to his lack of experience and the lacking command of the Russian language. Initially, Jeff agrees, but is also faced by linguistic and cultural problems with Katya Karaseva, a former NLZ`s chief accountant, who obtains the position of financial manager. Jeff is getting impatient becoming financial manager and informs John, who is seeking contact to Ron Chapman, the Wane country manager for Russia. However, Ron is not concerned and supports increasingly the leading style of Lev and refers to cultural differences and advices John to be patient. As Lev fills the position of human resource manager by the son of his doctor, John looses his belief in a success of the Joint Venture and subsequently he returns to the USA without getting replaced. Jeff gets appointed as financial manager by the board of Rus Wane, but he is asking for transfer four month later, as he could not overcome the barriers to Katya. Ron Chapman remains country manager for Russia and overtakes the position of Lev, who likely bought the mayor stake of NLZ, after it got privatised, consequently he returns to work exclusively for NLZ. Rus Wane is still struggling with a low demand and several infrastructure obstacles, as well as a lack of some expertise. On the other hand Wane is delighted by the Russians engineering skills. Also, it remains patient since the Soviet Republic is running the transformation to freemarket economies.